Note 5. Loans

The following table shows the composition of the Company's loan portfolio as of December 31, 2012 and 2011:

	December 31, 2012				December 31, 2011
Commercial
Real estate	$	251,335,000	28.9	%	$	255,424,000	29.5	%
Construction		22,417,000	2.6	%		32,574,000	3.8	%
Other		81,183,000	9.3	%		86,982,000	10.1	%
Municipal		14,704,000	1.7	%		16,221,000	1.9	%
Residential
Term		379,447,000	43.7	%		341,286,000	39.5	%
Construction		6,459,000	0.7	%		10,469,000	1.2	%
Home equity line of credit		99,082,000	11.4	%		105,244,000	12.1	%
Consumer		14,657,000	1.7	%		16,788,000	1.9	%
Total loans	$	869,284,000	100.0	%	$	864,988,000	100.0	%

Loan balances include net deferred loan costs of $1,783,000 in 2012 and $1,386,000 in 2011. Pursuant to collateral agreements, qualifying first mortgage loans, which were valued at $256,378,000 and $211,597,000 at December 31, 2012 and 2011, respectively, were used to collateralize borrowings from the Federal Home Loan Bank of Boston. In addition, commercial, construction and home equity loans totaling $220,520,000 at December 31, 2012 were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.

At December 31, 2012 and 2011, non-accrual loans were $19,150,000 and $27,806,000, respectively. As of December 31, 2012, 2011 and 2010, interest income which would have been recognized on these loans, if interest had been accrued, was $1,158,000, $1,052,000, and $1,334,000, respectively. Loans more than 90 days past due accruing interest totaled $1,051,000 at December 31, 2012 and $1,170,000 at December 31, 2011. The Company continues to

accrue interest on these loans because it believes collection of principal and interest is reasonably assured.

Loans to directors, officers and employees totaled $28,707,000 at December 31, 2012 and $37,935,000 at December 31, 2011. A summary of loans to directors and executive officers, which in the aggregate exceed $60,000, is as follows:

For the years ended December 31,	2012			2011
Balance at beginning of year	$	24,551,000		$	25,525,000
New loans		275,000			237,000
Repayments		(9,909,000	)		(1,211,000	)
Balance at end of year	$	14,917,000		$	24,551,000

Information on the past-due status of loans as of December 31, 2012, is presented in the following table:

	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate	$	2,172,000	$	346,000	$	2,380,000	$	4,898,000	$	246,437,000	$	251,335,000	$	102,000
Construction				29,000		35,000		64,000		22,353,000		22,417,000		-
Other		658,000		218,000		2,306,000		3,182,000		78,001,000		81,183,000		2,000
Municipal		136,000		-		-		136,000		14,568,000		14,704,000		-
Residential
Term		2,404,000		1,082,000		9,298,000		12,784,000		366,663,000		379,447,000		363,000
Construction		188,000		-		-		188,000		6,271,000		6,459,000		-
Home equity line of credit		430,000		133,000		1,136,000		1,699,000		97,383,000		99,082,000		539,000
Consumer		101,000		70,000		45,000		216,000		14,441,000		14,657,000		45,000
Total	$	6,089,000	$	1,878,000	$	15,200,000	$	23,167,000	$	846,117,000	$	869,284,000	$	1,051,000

Information on the past-due status of loans as of December 31, 2011, is presented in the following table:

	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate	$	1,367,000	$	1,505,000	$	3,992,000	$	6,864,000	$	248,560,000	$	255,424,000	$	-
Construction		-		174,000		1,603,000		1,777,000		30,797,000		32,574,000		-
Other		665,000		766,000		1,192,000		2,623,000		84,359,000		86,982,000		52,000
Municipal		-		-		-		-		16,221,000		16,221,000		-
Residential
Term		1,933,000		1,398,000		8,843,000		12,174,000		329,112,000		341,286,000		1,118,000
Construction		-		-		1,198,000		1,198,000		9,271,000		10,469,000		-
Home equity line of credit		480,000		-		1,134,000		1,614,000		103,630,000		105,244,000		-
Consumer		230,000		101,000		16,000		347,000		16,441,000		16,788,000		-
Total	$	4,675,000	$	3,944,000	$	17,978,000	$	26,597,000	$	838,391,000	$	864,988,000	$	1,170,000

For all classes, loans are placed on non-accrual status when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when principal and interest is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case the loan may continue to accrue interest in spite of its past due status). A loan is "well secured" if it is secured (1) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt (including accrued interest) in full, or (2) by the guarantee of a financially responsible party. A loan is "in the process of collection" if collection of the loan is

proceeding in due course either (1) through legal action, including judgment enforcement procedures, or, (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future.

Information on nonaccrual loans as of December 31, 2012 and 2011 is presented in the following table:

	As of December 31
	2012		2011
Commercial
Real estate	$	4,603,000	$	7,064,000
Construction		101,000		2,350,000
Other		3,459,000		5,784,000
Municipal		-		-
Residential
Term		10,333,000		10,194,000
Construction		-		1,198,000
Home equity line of credit		654,000		1,163,000
Consumer		-		53,000
Total	$	19,150,000	$	27,806,000

Information regarding impaired loans is as follows:

For the years ended December 31,	2012		2011		2010
Average investment in impaired loans	$	45,019,000	$	28,777,000	$	25,836,000
Interest income recognized on impaired loans, all on cash basis		1,039,000		598,000		143,000

As of December 31,	2012			2011
Balance of impaired loans	$	45,744,000		$	42,120,000
Less portion for which no allowance for loan losses is allocated		(28,282,000	)		(27,897,000	)
Portion of impaired loan balance for which an allowance for loan losses is allocated	$	17,462,000		$	14,223,000
Portion of allowance for loan losses allocated to the impaired loan balance	$	3,539,000		$	2,058,000

Impaired loans include restructured loans and loans placed on non-accrual. These loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. If the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is established for the difference, or, in certain situations, if the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.

A breakdown of impaired loans by category as of December 31, 2012, is presented in the following table:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recognized Interest Income
With No Related Allowance
Commercial
Real estate	$	9,386,000	$	9,963,000	$	-	$	10,102,000	$	199,000
Construction		101,000		115,000		-		2,533,000		-
Other		4,737,000		5,345,000		-		2,877,000		53,000
Municipal		-		-		-		-		-
Residential
Term		12,747,000		14,440,000		-		9,801,000		189,000
Construction		-		-		-		560,000		-
Home equity line of credit		1,311,000		1,440,000		-		961,000		27,000
Consumer		-		-		-		3,000		-
	$	28,282,000	$	31,303,000	$	-	$	26,837,000	$	468,000
With an Allowance Recorded
Commercial
Real estate	$	6,388,000	$	7,018,000	$	1,523,000	$	4,614,000	$	211,000
Construction		3,253,000		3,253,000		969,000		1,816,000		85,000
Other		1,124,000		1,126,000		652,000		1,974,000		38,000
Municipal		-		-		-		-		-
Residential
Term		6,697,000		6,842,000		395,000		9,066,000		237,000
Construction		-		-		-		261,000		-
Home equity line of credit		-		-		-		442,000		-
Consumer		-		-		-		9,000		-
	$	17,462,000	$	18,239,000	$	3,539,000	$	18,182,000	$	571,000
Total
Commercial
Real estate	$	15,774,000	$	16,981,000	$	1,523,000	$	14,716,000	$	410,000
Construction		3,354,000		3,368,000		969,000		4,349,000		85,000
Other		5,861,000		6,471,000		652,000		4,851,000		91,000
Municipal		-		-		-		-		-
Residential
Term		19,444,000		21,282,000		395,000		18,867,000		426,000
Construction		-		-		-		821,000		-
Home equity line of credit		1,311,000		1,440,000		-		1,403,000		27,000
Consumer		-		-		-		12,000		-
	$	45,744,000	$	49,542,000	$	3,539,000	$	45,019,000	$	1,039,000

Substantially all interest income recognized on impaired loans for all classes of financing receivables was recognized on a cash basis as received.

A breakdown of impaired loans by category as of December 31, 2011, is presented in the following table:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recognized Interest Income
With No Related Allowance
Commercial
Real estate	$	5,584,000	$	5,584,000	$	-	$	5,212,000	$	23,000
Construction		5,172,000		5,172,000		-		1,072,000		143,000
Other		6,022,000		6,022,000		-		1,918,000		28,000
Municipal		-		-		-		-		-
Residential
Term		9,875,000		9,875,000		-		9,493,000		54,000
Construction		468,000		468,000		-		961,000		-
Home equity line of credit		739,000		739,000		-		646,000		-
Consumer		37,000		37,000		-		39,000		-
	$	27,897,000	$	27,897,000	$	-	$	19,341,000	$	248,000
With an Allowance Recorded
Commercial
Real estate	$	4,557,000	$	4,557,000	$	808,000	$	2,307,000	$	103,000
Construction		530,000		530,000		33,000		247,000		-
Other		1,020,000		1,020,000		402,000		681,000		19,000
Municipal		-		-		-		-		-
Residential
Term		6,946,000		6,946,000		478,000		5,628,000		228,000
Construction		730,000		730,000		235,000		244,000		-
Home equity line of credit		424,000		424,000		91,000		272,000		-
Consumer		16,000		16,000		11,000		57,000		-
	$	14,223,000	$	14,223,000	$	2,058,000	$	9,436,000	$	350,000
Total
Commercial
Real estate	$	10,141,000	$	10,141,000	$	808,000	$	7,519,000	$	126,000
Construction		5,702,000		5,702,000		33,000		1,318,000		143,000
Other		7,042,000		7,042,000		402,000		2,600,000		47,000
Municipal		-		-		-		-		-
Residential
Term		16,821,000		16,821,000		478,000		15,121,000		282,000
Construction		1,198,000		1,198,000		235,000		1,205,000		-
Home equity line of credit		1,163,000		1,163,000		91,000		918,000		-
Consumer		53,000		53,000		11,000		96,000		-
	$	42,120,000	$	42,120,000	$	2,058,000	$	28,777,000	$	598,000